State economy outpaces nation again

North Carolina’s economy continues to outperform the national and regional averages — which is one reason why, the results of the gubernatorial election notwithstanding, the state’s policy fundamentals are unlikely to change in the foreseeable future.

A few days ago, the federal government released its latest estimates of gross domestic product (GDP) by state. During the second quarter of 2016, North Carolina’s GDP rose by 1.5 percent. That’s faster growth than in most states in the country, most states in the Southeast, and all our neighboring states except Tennessee. Looking at the 12-month trend, and adjusting for inflation, North Carolina’s GDP growth ranks 10th in the nation.

In the past, I’ve added two other measures to the mix, job creation and per-capita income, to identify the states with the strongest economic performance. Using the latest-available data, I can report that only nine states in the country rank in the top third in all three measures. North Carolina is one of them, along with Tennessee, Georgia, Washington, Oregon, Utah, Hawaii, Michigan, and New Hampshire.

Why are these states doing comparatively well? Geography is certainly one explanation. States closely tied to Pacific Rim trade and to the burgeoning Southeastern region tend to be strong performers, for example.

But public policy is also a likely part of the story. Most of these states are governed conservatively. Their fiscal and regulatory policies make them attractive places to work, invest, and live (even Washington and Oregon compare well on measures of pro-growth tax policy, for example, despite their blueish political tinge).

During the 2016 campaign, some North Carolina Democrats and progressives challenged this entire paradigm. They argued either that state policies didn’t matter much or that our state’s policies were economically destructive. They argued for reversing recent tax cuts and regulatory reforms, increasing expenditures, and expanding entitlements such as Medicaid and unemployment insurance.

The Left lost this political argument, although few are willing to admit it. Republicans won most of the votes statewide for legislature, maintained their supermajorities of legislative seats, re-elected Lt. Gov. Dan Forest and two other Council of State members, and picked up the offices of state treasurer, state superintendent of public instruction, and insurance commissioner for the first time in the modern era.

The key Democratic counterexample in this election cycle, Roy Cooper, didn’t go all in with the Left on its economic message. While critical of many GOP policies, Cooper pointedly refused to endorse tax increases. In fact, he insisted that state priorities such as teacher pay raises could be financed with existing revenue growth, and even expressed support for further tax cuts aimed at low- to moderate-income North Carolinians — a policy that the Republican-led legislature might be willing to pursue, depending on the specifics.

Whether Cooper will be relevant or irrelevant to public policymaking in Raleigh is a matter for the new governor and his team to decide. If he transforms himself from a moderate-sounding candidate into a full-throated progressive, as the Left is demanding he do, that will render him irrelevant. If, however, he proposes ideas that are distinctively his but not incompatible with the general direction Republican lawmakers have been going, that may generate opportunities for productive discussion and legislation.

North Carolinians aren’t satisfied with the pace of economic growth. In this, they are joined by most Americans. It is a critique aimed at the federal government, and a reason why Republicans have now won the chance to govern Washington. But at the state level, there was no public abandonment of GOP governance or conservative reform.

The state’s Republican leaders know this. They believe their economic policies have helped North Carolina outperform most other states. They believe the voters largely agree. So you can expect them to keep looking for ways to lighten the regulatory burden, restrain the growth of spending, and reform the tax code.

Or you can expect them to run in terror from a new round of Moral Monday protests. Your grasp of reality may be beyond my ability to improve.

The preceding post first appeared in the Carolina Journal Online on December 15, 2016 and reappears here with gracious permission of the author. Mr. Hood is chairman of the John Locke Foundation and appears on the talk show “NC SPIN.” You can follow him @JohnHoodNC.

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